Virtual goods buyers

(Credit: Playspan)

I hadn’t seen this report from September. The most popular thing for online gamers to buy is virtual currency followed by weapons, wearables, subscription codes, power-ups, virtual gifts, and maps/levels.

Posted via web from Paul’s posterous

Ancestry.com, which will trade under the ticker symbol ACOM, runs a subscription-based genealogy site. The company digs through billions of historical records to help subscribers name the branches on their respective family trees. While the venture may seem boring to the younger social-media set, a million people are willing to pay for the service.

And still more are signing up. Subscriptions are growing at a rate of 11%, with an average monthly fee of $16.50. Two-thirds of the subs are annual, though, and 38% of the site’s clients pay up for a premium package. Lifetime revenues per subscriber come in at $300, meaning that these people stick around for over 17 years. That explains the low 4% churn rate, which dwindles to 2% for Ancestry members who’ve stuck around for two or more years.

One of the worst pieces of financial journalism I have ever seen. Speaking of Ancestry subscribers:

“…these people stick around for over 17 years.”

LOL. Yes, Ancestry has had subscribers for 17 years — since 1992, years before the internet was even invented. That’s how a lifetime value of $300 is calculated.

That’s what you get when you don’t realize that MONTHLY REVENUE is $16.50 per person — not ANNUAL REVENUE.

Seriously, someone ought to QA this kind of stuff before people go out and buy or sell stock on weak analysis like this.

Posted via web from Paul’s posterous

But why the heck would you want to buy it?… I mean the flipper guys like it… the investors like it… what are they seeing?… I will tell you what they are seeing… first of all I bet many of you would never even consider going to a website that lets you identify and search thru your family tree… I mean this company may seem like many of the pointless .com IPO’s that have were foisted on us from 1999 to 2000… only to get wiped out not long after… when investors finally started evaluating them on sales and earnings instead of eyeballs, pagers, unique visitors.

Who wants Ancestry.com when you have Facebook to help you with people who are still alive?… just because you do not see the appeal of a companies product does not mean that there is not any appeal… let me explain to you… Ancestry.com runs a very sophisticated subscription model… and it seems to be working very well right now… and I should know, I am the Chairman of the .com myself, and subscription models rather than all advertising businesses are great annuity streams… if you do not understand Ancestry.com, I want you to think of it as one of the… let’s say the internet for the older demographic… Facebook for the over 65 crowd…

Interesting take on Ancestry — “the internet for the older demographic”, “Facebook for the over 65 crowd.”

Posted via web from Paul’s posterous

Ancestry.com is slated to go public on Wednesday. I always dreamed of being part of that IPO, but I’ve been out of the company (7 years) longer than I was in the company (6 years). But my excitement about watching a company I helped create trade on a public exchange is mounting. I cannot wait to see what happens when ACOM debuts on the NASDAQ this week.

I’m thinking about holding an IPO party at my house on Wednesday for the early Ancestry.com employees who are no longer with the company. It would be fun to reminisce a bit and see where everyone is now. If “public demand” for a party is high, I’m sure we’ll be able to pull it off on short notice. Between LinkedIn and Facebook, my blog and twitter, we should be able to get at least a dozen or two people to show up. If you’re interested already (and qualify as a “former Ancestry employee”), shoot me an email. (paul AT familylink.com) We’ll watch a couple of old company videos and hopefully some Tivo’d coverage of some of the business news about Ancestry from Wednesday.

This week is also exciting because FamilyLink.com is going viral. Our FamilyLink.com Quantcast chart shows that we’ve had more than 6 million unique visitors since we debuted last month and we are just getting started. We think our Flash-based family tree tool is the funnest online tree ever created, and it is getting tons of usage. We hope to be a top Facebook Connect site soon. In fact, Facebook’s Wiki shows FamilyLink as an example of how to create invites and requests using Facebook Connect. Facebook has been an incredible platform for our company to build on.

Even though Compete.com shows us as having more unique visitors than Ancestry.com, and even though we are classified by them as a genealogy site, we are actually a totally different creature. We are a family social site. Users of our Facebook applications (we have about 60MM users) can easily navigate to FamilyLink.com and enjoy an enhanced family experience there. We connect you to your living relatives. We help you share content and life experiences and memories with your immediate and extended family. Family trees are a fun part of our overall experience (because everyone loves to see how they fit into their family) but we are not currently a deep research site for ancestral records.

About 15% of our users consider themselves genealogists (which means 85% do not).  Many of them already subscribe to paid services like Ancestry.com or use free genealogy web sites for research. We believe that genealogy will likely be an important advertising category for us in the future, since we are attracting millions of families to our service and as the saying goes, “there’s a genealogist in every family.” But you can also say there is a photographer, event planner, scrapbooker, top chef, health nut, sports fanatic, vacationer and couponeer in every family. When we ask customers what additional features they want us to build into FamilyLink, we get everything from photo albums to recipe sharing to online chats and event planning tools. We will generate ad or product revenue from a  lot of categories as we try to meet the needs of millions of families worldwide.

This week is also intense and interesting because of all the upcoming changes Facebook announced for their Platform last week. Here are some links:

• Video of Facebook’s platform changes. Ethan Beard, who heads up the Facebook Developers Network, describes the product roadmap in this nearly one hour video. Mark Zuckerberg introduced him.
• Facebook’s developer policies have been condensed from 17 pages to 3 pages — all policies are now in one place
• Nick O’Neill’s This Week in Facebook post shows how much is going on at Facebook right now. The pace of change is incredible, and it is hard to keep up with everything, but the pay off for being in the Facebook ecosystem can still be amazing.

More information has been coming out in the last few months about the best ways to monetize social web sites than I have ever seen before. The Social Ad Summit in NYC provided a lot of good information, especially about virtual currencies and virtual goods; PeanutLabs followed the Mike Arrington “Spam Facebook Like a Pro” blog post with some great survey data about how users prefer to pay for in-game virtual currency; and this article from VentureDig covers monetizing social networks with recommendations for 2010.

It’s a great time to be in social networking. Investor interest in social networking related companies seems really strong. For years the conventional wisdom was that social networks could not be monetized, but it turns out that for most of that time the fastest growing social networks (like Twitter today) weren’t even focused on monetization. They were sacrificing revenue or deferring even thinking about revenue to capitalize on the fact that millions of people would be joining social networks and that the network effect would lead to a few winners, with a winner-take-most outcome. That was a very good bet.

It is well known that Facebook has turned cash flow positive, Twitter raised money at a $1 billion valuation, and Zynga is generating a ton of revenue, some say about $250 million this year. But it is not so well known that teen social network myYearbook turned profitable this year (in Q1 according to CEO Geoff Cook) because of “Lunch Money” and virtual goods. There are other under-the-radar social networking companies and app/game developers that aren’t well known at the moment that will breakout in 2010 and become widely known.

Here’s to hoping that FamilyLink.com will be one of them.

Kevin Merritt, CEO Socrata, Inc. (A venture backed startup in Seattle that helps government agencies get data online and it social)

Vijay Ravindran, was at Amazon 7 years, @catalyst, now at Washington Post

Tom McInerney, Lt. General U.S. Air Force (ret.), Fox News Analyst

Mike Allen, chief political correspondent for Politico

Panelists were asked what was impressive to them so far about technology in politics and government. One mentioned the Pres. Obama campaign’s use of social media. Someone else said how IdeaScale and Google Moderator are being used in town hall meetings.

Vijay. Wikipedia’s announced move to use moderation in high profile pages, will ultimately make them more useful. At the Post, we’ve had success with whorunsgov.com, that shows government structure down at a lower level than Wikipedia.

Peter. This is about influencer identification and analysis. What other technologies are used for this? How can this harm or help our democracy?

Mike. There is great commercial value in being able to identify the right people and communicate with them. 3121 [an initiative of National Journal] is like Facebook for Congress. It’s named after the Congressional switchboard phone number. The idea is that someone will emerge in that community who will be the place you go if you are Rep and want to hear about immigration or if you are a Demo and want to hear about climate. It could be a low-level person. To be able to communicate through that person, to other higher level people, might be very helpful.

Vijay. It seems like Comcast’s customer service policy on Twitter is influenced by how many followers a customer has on Twitter. That has interesting implications if it spreads. Before, you had a broadcast mechanism to talk to voters; in our new social media world where you might be connected to 1,000 people and myself to 5, talking to a bunch that are connected to 1,000 — the multiplicative value makes you more valuable than you used to be. It changes the value in campaigns with young people, and it won’t be purely connected to turnout percentage.

Peter. So a young person may be willing to share a video or write a blog post or give $1?

Peter. How will things be different in the next election cycle? Anything you are excited for?

Mike. We are concerned about the fact that even though the technologies are billed as connecting people, they are in fact, sometimes isolating people. As more people get news from HuffPost or Fox, we aren’t having the common conversation we used to have. If a national campaign wanted to really move a story, have a big splash, they used to have to deal with AP, or Washington Post, or NY Times, but now there are a million places they can go to break a story. Politicians don’t need the Post or Politico. Their own content is now accessible. As we look ahead to 2010, the campaigns will have less and less worry about what we write about them, and will put more energy into reaching them directly. Campaigns are worried about their TV commercials being TIVOed (and skipped).

Peter. So is our democracy being strengthened by this or not? Is this better?

Mike. We love the fact the there is more you can get, and more premium quality. You used to have to read what your local news gave you. Now you can click away. You can see the raw speech, the raw materials for my story. You don’t need my account. There is a premium on understanding, explanation, things you can’t get from the raw materials yourself. I talk to journalism students. More smart people are reading more than ever.

Tom. Pres. Obama didn’t have a track record before, but now he’ll have a host of things about bills, etc. He’ll now live on what his accomplishments are. But he’ll have to justify what unemployment is, what the debt is. I don’t read the papers I used to read, I just get everything online. People consume a lot of content. It’s going to be interesting in the 2010 election, to see what role online plays vs. what the facts are and what people have to depend on. I’m in the TV business and everything is based on a 4-minute segment. You get 2 and the anchor gets 2. Your points have to come across quickly. It’s not in the depth. They do put a lot of background material up. Visual, sensual images have a powerful role to play. They can be quick and decisive.

Peter. How does the democratization of data play a role in our daily lives?

Kevin. Social media topic is an important one. I’m personally not very focused on the election process. We don’t look at that. But with regard to the use of social media, a couple of thoughts and concerns. One is: social media in general makes politicians more approachable than they have ever been. I went to an event 4-5 months ago Congressman Honda was there. Maybe it was because I had visited his page on Facebook, his feed on Twitter, I approached him, probably because I had the tangible sense that he was another human being. I don’t have a crystal ball on technology, but someone will take advantage of FB as a platform. Many people use Facebook Pages, but underlying this is a way to get into the social graph of influencers, people with large networks, there will be creative folks leveraging the platform for campaigning or fundraising. Vijay made a good observation on young folks being neglected, to them becoming a core central focus in the election process. We shouldn’t do that to the exclusion of those folks not comfortable yet with social media. Google Moderator had hundreds of thousands of logins during the Presidential Townhall. Kudos to the Sunlight Foundation for creating some interesting data sets that look at the political process, fundraising, lobbying, etc. I see interesting work in the future as more of these data sets come online, like Congressional calendars, as transparency comes into the process, you’ll see interesting ways of combining this data. We’ll get new learnings from this.

Peter. On the topic of transparency, exposing relationships, lobbying etc. Something was reported recently about lobbyists not having to register.

Mike. Pres. Obama is thinking of extending his lobbying restrictions to boards…. White house put out a letter today about lobbying rules. Facebook as a platform for candidates in 2010 — how little the surface has been scratched. David Plouffe, campaign manager for Obama, his book is coming out on Nov. 3, anniversary of election. He will say their key driver was email. FB and Twitter was helpful for the optics. But it really didn’t change things. Texting and raising money online is why he is president.

Q. Has the quality of news coverage suffered because of sound bytes?

Tom. You have to be on point and talk in sound bytes. On the radio you can do 15, 30 min, an hour.

Mike. Who covers the expensive stories? Few reporters travel with the president now. Few cover the wars. It’s because of the economics. When a paper loses $1 in paper, they gain $0.10 online. So we have more talk, but not necessarily more facts.

Peter. Last week a discussion started happening around news organizations converting to non-profits.

Mike. Pres. Obama said he would be open to it.

Tom. Mike Young can give you views from Iraq and Afghanistan that are very informative. Online, you can get good stuff and bad stuff online, but how can you tell which is which?

Audience question: how will fund-raising change in the next election cycle?

Vijay. They didn’t abandon the big fund raisers, but they incrementally added new ways to raise money online. There hasn’t been a lot of innovation in getting money through social. Like what examples of making money from Twitter. There have been donation apps on FB that have raised like $28 and have gone no where. With all the tools in the platform, you’ll see people taking a cut. It’ll be done as an additive. If they think they can run their whole campaign this way, it will be a short shelf life.

Peter. If you have someone’s email address, a couple of companies can analyze their social graph and target their friends.

Tom. The Obama campaign did that and those that did it have turned it into a commercial effort.

Kevin. Medicare, and all the procedures that take place in it, one of the big pieces that is not visible is the cost of these procedures. At Socrata, we were up for renewal on our medical plan. One item was $5 m lifetime maximum benefit, the other was $2 million. I have no idea how much things cost, like open heart surgery. So we are taking medical transactions, and stripping out all the personal identifiable information … you can do some trending and analyzing. With an Attorney General office, we are looking at the cost per unit of a prescription drug at any pharmacy in the state. Some places may charge twice as much per unit. So as we think about health care reform, part of it is giving people some sense of what things cost.

Kevin. We have 35 years experience working with email, we consider them records. But is a Facebook comment considered a record. Am I allowed to moderate it, or is it a violation of a freedom speech issue? White house is taking every social interaction as a record and they print it off and send it off to an archive. Once there is more clarity about what a record is….

Vijay. Most politicians use social media to broadcast their message more inexpensively and not really as a two-way exchange. How many comments from politicians have you read on their message boards or fan pages?

Peter. How many blog posts does it take to kill a tree? [Referring to the Obama administrations printing and archiving of all online comments]

Peter. You used to be able to target for political affiliation on Facebook, but it was taken down about a year ago. I don’t know why.

Vijay. In 2008, one side used social media a lot more than the other side. My sense is that it’s much more of a political leaning element as much as it is the age group, their social circles. I see as many libertarians using social media effectively as liberals.

Peter. Gallup poll showed 63% favorable for Obama, but I used ScoutLabs which showed bloggers were only 52% favorable to Obama–why the difference?

Someone mentioned a Twitter hashtag #tcoc to follow “top conservatives on twitter”

Vijay. The media doesn’t know how to cover these trends.

Q. what is the political killer app of 2010?

Peter. One thing I’d like to see is a very sound, fantasy candidate system. Where whoever wins, all their money goes to their candidate.

Vijay. I’d like to see something like Google Wave to be able to parse the unstructured conversations that are occuring …

Kevin. Micropayments and virtual goods might be tied together to raise funds on Facebook.

Q. Will republicans reach the level of sophistication like demos did in 2008?

Peter. A very specific candidate ran and won. Brand Obama was good. He had about 3MM subscribers to his SMS.

Panelists: Chris Hagan, Goodwin Procter; Frank Finelli, The Carlyle Group; Wes Husted, CFO Abraxas Corporation

Wes. About two years ago there was a steady flow of acquisition candidates, then it shut down completely. It has started up again in the last few months.

Bob. There is potential regulation of private equity, as well as funding challenges. How will that affect small and medium sized technology companies?

Chris. It is still hard to get deals done. Bankers tend to go from guard rail to guard rail. In 2005-2007 they were ready to lend to anyone with a good balance sheet. Now, they’ve gone to the other guard rail and aren’t lending very much. If private equity can’t line up financing, we can’t compete.

Frank. Carlyle has $80 billion under management. Mostly we do standard leveraged buyouts, and our ability to leverage is somewhat impaired now. We try to bring companies that are profitable and have revenue growth up to become larger companies. We do have some ability to play on the financing side with mezannine funds. Our portfolio companies are important acquisitors in some of these markets. We have some with strong balance sheets. Private equity is going to remain a force out there. The ability to structure terms to compete for value is the unknown thing.

Wes. I’m hearing pain from my side. I agree completely with Frank. If there is a deal to be made, the trick to it is the financing piece. The banking side has swung so far in the other direction, you’ve got to have something very special if you want to stand a chance. It’s an irony because the money is cheaper now but it’s twice as hard to get.

Bob. There has been some reopening of the IPO market recently. IPO used to be the goal of many technology companies. What do you think of the IPO market today? Is that an option for growing tech companies

Frank. I’m skeptical. I heard a report on the radio saying the IPOs were back, but it was a single digit number. Clearly, the IPO markets have to be part of the solution here. Is there an issue with scale, given all the requirements on public firms. Small firms in the downturn really struggled. Certainly if you are privately held, everything you do is available to your limited partners, but it’s even more challenging when you are publicly held. I’d be interested in seeing if there is a way to facilitate public listings for smaller tech companies.

Chris. The IPO is not dead the way it was six months ago. When you go public you have 3 real issues: 1) you open the barn door so everyone knows what you are doing 2) you have Sarbanes Oxley which forces the management team to step up to the plate behind all the numbers, to certify to the public 3) dramatic costs you have in selling to the public. But the IPO does represent a great weapon. Many will do a dual track, so they can say, “we’ve filed to go public” to the private equity or acquirers, to get a better price.

Bob. I saw yesterday there has been $80 bilion of private equity taking companies private. There are probably more companies going private than going public.

Frank. The gap between valuations for private vs. public has probably increased overall.

Audience question: Dixon Doll said over 90% of job creation happened after an IPO. Does job growth slow down after acquisitions?

Wes. I think job creation happens a lot after acquisitions. I’ve seen many jobs created because of acquisitions.

Frank. Public companies may be viewed more favorably in the credit markets, and that may be why more jobs can be created.

Audience question. I think you said Carlyle is focusing more on growth capital than the VC stage.

Frank. It was a decision to move more later stage. It’s a function of where we were seeing value being created. This has to do somewhat with the technical and engineering requirements of being a successful investor in the early stage–to know whether you have a winner on your hands or not. It’s a tough process to go from technology to product to market. So if we work with companies that have gotten through the intial stages and are now scaling, is a good way to use Carlyle’s resources worldwide.

Bob. With all the federal government involvement and initiatives, how are you seeing the established Defense companies re-equipping themselves to play in these new fast lanes? Overall military spending is not likely to be increasing, but spending in other areas will be growing.

Wes. It looks like the 7 defense companies you mentioned are probably looking to grow by acquisitions, based on the administration’s spending agenda in these new areas.

Frank. Pentagon publishes a program objective memorandum that gives objective for next 5 years. This administration has chosen not to publish a POM for 2010-2015. So no one has seen what their funding priorities might look like. Many defense companies focused on system integration. Most of the IR&D (sic) has gone to system integration and to fixed priced contracts (instead of cost plus), consequently, they haven’t invested so much in R&D. So the BD teams are looking for white space. They are finding some areas of growth, then they have to assess inhouse capabilities (how can we be world class in this?) vs. acquisitions. If we can meld the program management and system integration capabilities of these large defense contractors with the new areas of government spending, it could be a good thing for the country.

Wes. We look for technology that can be brought into the national security space, so keeping IP in house is important to us. If you sell me an idea based on projected earnings, you won’t recognize that value except through an earn-out. 2 of our 5 deals have been earn outs.

Wes. We have acquired significant intellectual capital through our acquisitions, we have kept subject matter experts, and we are focused on developing real technology that we can take into a broad swath of customers. One product line we have, the chamelion line (used by Amex and Disney), used by law enforcement, plus some other players in national security space.

Frank said something about a new rule around organizational conflicts (OCIs) makes it so companies working with all federal agencies can’t work on both sides — recommending technology and providing it. [I didn't catch the legislation or rule he referred to.]

Bob. How do you value companies that you buy, so that you can bring their products into a bigger plan?

Wes. We are trying to find the idea — one of our acquisitions had no idea there was a government application — we will show them, you want a big check today, fine. But the real payoff is what we can do together if you join us. So we are quite generous with the equity of our company. If you buy into our vision and we buy into yours, that is where the payoff is. Most of them are young, and we can create success together. This is different than buying a services company they built over 20 years and they want a big check so they can hit the trail.

Chris. If you buy a business for what they are going to produce, you often do it as an earn out. But if you buy a company where 1+1 = 3, you can structure it with some cash and some stock. So they are motivated to make the whole enterprise succeeds.

The government spends 40% of what we make.

We spend more for our average prisoner than for an average student.

Going through the airports, almost every time I get the probe.

Some construction permits take more than 6 years.

How brave are we?

There are more lawyers per worker than any other country. More bureaucrats per worker than any other country.

Average salary for a public worker is higher than for a private worker now.

Speedy trials? He shows picture of OJ Simpson.

Are we still free to own guns?

We’ve become very politically correct, except maybe me. But I’ve always thought I was correct politically.

How happy are we?

Do we all fit into a mold and become automatons?

Thoughts:

• Pay increases for bureaucrats based on GDP growth, not cpi. (Right now, they are incentivized to create inflation, not GDP growth.)
• Drop the border with Canada. They have oil. (And they want to do this.)
• If a department can do the job with less, give them raises.
• If a department fails, eliminate it.
• Free trade.
• Right to work. (Right to work states are outperforming the rest of the union by quite a bit.)
• Leave venture capital alone. It works.

All these were VC funded: copier, semiconductors, PCs, Skype, etc, etc.

Also, solar panels, Electric cars, space launches, wind energy, genetics, etc, etc

The “Draper Wave” shows that the recessions are all part of an economic cycle. VCs create a bunch of jobs, new innovations, the market gets excited, and inflated, then the market comes crashing down. The Private Equity business comes in, buys companies, fires half their workforce. (He shows how VC funds create surges in innovation and jobs, then private equity comes in and fires lots of people, creating another recession.)

It’s time for another VC resurgence.

Viral marketing works. Hotmail has now reached 500,000,000 people. All web based email has reached about a billion. Skype has reached a billion even faster.

It’s a global game now.

The game has changed for governments too. Each government used to govern a geographic territory. Now we have competitive governance. Better communication, perfect information, simplified supply chains. Governmens have to compete for great businesses, for capital, for entrepreneurs.

As he goes around the world, he notices how governments around the world are doing a great job attracting capital and entrepreneurs. The U.S. is not. The U.S. is adding more difficulty, more regulation for entrepreneurs. Imagine if the world completely opened up, and you could pick and choose. You might pick Chile’s privatized social security, you’d pick something about Singapore, US freedom of speech, maybe Sweden’s ______.

He looked at the government spending chart at usgovernmentspending.com. It’s gone from 7 1/2% to over 40% in the past 100 years. That may be a good thing, but I want to see whether it really is.

He showed charts of government spending per capita (normalized per capita) In 1820, India, US and China were all dirt poor. He has charted spending over time, and he has determined that US GDP growth is hurt by the increase in government spending. He can show this correlation.

He spoke with SBIC head Seth Greene today about the government’s plans to invest in Infrastructure, Market, CleanTech. The government can:

• make us secure (Tesla loan example)
• create the market platform that works–Sarbox after 10 public years
• encourage good behavior–such as green incentives

His fund used to tell entrepreneurs that if in five years they could do $20 million in revenue and $3 million in profits they could go public; but now, with Sarbanes Oxley, that entire $3 million in profits would be taken up by compliance, so the entrepeneurs don’t go public.

He thinks Sarbanes Oxley should only apply to companies of a certain size and only after they’ve been public for 10 years.

What the government should not do:

• Do not invest equity capital
• Do not regulate/tax venture capital
• Do not scrutinize entrepreneurs
• Do not hire and spend

Government does a great job of identifying problems: energy, security, health care, traffic, polution. I understand there is more traffic here (in DC) since the stimulus because everyone is coming here.

Business Solves problems:

• Energy (EnerNoc, Konarka, GreenFuel)
• Security (Lumena, SafeView, Tesla)
• Health Care (Athenahealth, Epocrates)
• Traffic, Pollution (Skype, Hotmail, Meebo)
• Poverty (SugarCRM, SocialText, World of Good)
• Education (Baiku, Google)

He ran though a number of companies that are solving big problems in energy. Oasys does water purification. Tesla lets you go very fast (0-60 faster than a gas car) and this is the wave of the future. When you drive an electric car past a gas station you realize you are driving by a dinosaur. (And gas does come from dinosaurs, so this is just the circle of life.)

Reva is the India version of the Tesla. I drove one around.

Technology just continues to march on. Think of all the inventions in the past 50 years. Airplane, etc.

Imagine all the inventions that may be coming. Clean air and water. Near infinite energy supply. Green buildings. Batteries that last. Self-navigation electric cars. Education holodeck. Space travel. Immersive 3-D entertainment. Genetic disease prediction. Cure for heart disease. Cures for cancer, aids and malaria. Non-invasive surgery and security. Near thought communications. (I have moved a mouse cursor with just my mind, with a new technology.) New life forms. Food drop.

Liquidity is a problem. Mark to market from FASB 157 is a problem for our economy.

We have set up something called XChange, to provide liquidiy.

My daughter said, “everyone was rich before, and now everyone is poor. What happened?” I had to think about it for a minute, and then said, it’s all about the deal. If we make deals with each other, everyone is better off. (He walked through an example of lettuce, tomato, beef farmer, etc, cooperating to make a perfect cheeseburger)

We are all better off if we are freely able to trade with one another. Let’s say there is a big wall between us and China. Our semiconductor would be a slide-rule. Except for Micron there are no memory semiconductors here in the U.S. We’d have no flat screens. Without China, there’s no memory. Without computers, there’s no software. Without software, there’s no new media. (We’d go back to hieroglyphics).

The biggest problem we have is friction to free trade. Tariffcs, customs, quotas, import duties, licenses, standards, subsidies. When you see these reported in the press, you know someone is trying to hinder free trade.

This is what I call the Sucking Sound of Socialism:

Good Words and Bad Words

• When you hear Entitlement, think Opportunity.
• When you hear Rights, think Earnings.
• Government Intervention, think Business Solution.
• Bailout, think “let losers die.”
• Regulation, think Freedom.
• Patriotism->Protection->Poverty think “Free Trade.”

Audience question about XChange, the private stock market. He said, this is only for qualified institutional buyers, so it doesn’t affect the individual investor, unless the government saw that it was working well and they changed their mind. This is a way a company can be traded among qualified institutions, it helps the entrepreneur who wants to buy a house, but can’t get the company public. It helps VCs, because we have a lot of portfolio companies that can’t get liquid yet, and our investors need some liquidity.

Sarbanes Oxley rules are all designed to protect the individual investor, the widows, the orphans, to protect them from themselves, I guess. So the XChange would only work for institutional investors. But I believe personally that individual investors should be free to do what they want.

Audience question about the new Tesla. Tim said the upcoming Tesla will be $40-80k. The high end will have a 300 mile range, the low end will be 120 miles. I see this as being the Great American Car. I see Tesla as the next GM. It’s very exciting. If you have new technology, Tesla can incorporate it in a matter of months where it may have taken GM five years. You’ll see more computerized things in a car, like iPod connections, computer stuff, etc.

Panelists: Jose Ferreira, CEO Knewton; Jeff Shelstad, CEO Flat World Knowledge (new type of publisher that uses open source concepts for textbooks); Brian Jones, Senior Counsel, Dow Lohnes LLC (former general counsel of US Dept of Education.)

Saad. Presumption is that education needs to be reformed. What are the problems?

Jose. Internet and computing has revolutionized other industries, it is inevitable that it will revolutionize education also. It will solve the distribution problem. Makes distribution of content almost free. The best professor at HBS could only reach so many people. Koby Bryant is paid so much because he can entertain so many.

Brian. There is a political dimension to the K12 system that you don’t always see in post-secondary. Enormous sums of money coming into education from the stimulus bill, to improve student outcomes and teacher effectiveness. There’s a real fertile ground there. That is exciting. Particularly the amount of money the Federal government is investing.

Jeff. Coming out of the print side, the internet has already had a distruptive impact on textbook industry. Students can find alternatives to textbooks. We think textbooks needs to be redefined, built differently. He (Knewton) is taking one tact; we’re taking another. Perhaps we’ll merge eventually.

Jose. At local CVS there are 30 types of toothpaste. Yet, we standardize education for everyone. What we do at Knewton is we personalize it. We serve it to students based on what they need–sentences, paragraphs, pictures, videos, games. Depending on how you learn. And how you retain. Hyper personalized learning will power this flood of content on the internet which I think is coming.

Jeff. Flat World — we are trying to transfer the power of what takes place in the classroom to the teacher, so make the book match your course, rather than vice versa. To the student, we’ll deliver the content in any format they want at a fair price.

Saad. SRI report looked at effectiveness of online education vs. in classroom personal teaching. Online was more effective. Are you seeing that?

Brian. The post-secondary sector has shown us because of diversity of providers, is emphasis on different types of students and different modes of learning. The rise of the for-profit school sector is that it is serving non-traditional students. The for-profit sector has led the way in online delivery of content. We have students that work during the day, so classroom mode doesn’t work for them. K12 is a late comer to that, but we are seeing an emphasis on outcomes and a new openness to these alternatives. We have a competely online charter school in DC. It was controversial. Some people said, aren’t they really home schooled, and aren’t we giving taxpayer money to home schoolers? But what is coming out is that this mode of education is working for these kids. For whatever reason. Engaged parents. Maybe parents have religious reasons for not wanting their kids to participate in traditional schools. But the outcomes are positive. The more we focus on the true deliverable and the outcome of the technology, you’ll see door swing open and resources will follow.

Jeff. I got an online degree from Duke. They were an early pioneer in part off-campus part on-campus. In an online environment, the important of the instructor is actually raised. I had some poor expeiences in the 16 courses I took at Duke, some great experiences. Depended on the instructor. I think students like the flexibility of online, but I”m not sure I believe the report. I still the faculty member is vital in this process.

Jose. A couple interesting things about the report. Most online eduation has been astonishingly bad. U of Phoenix is big in online. My former employer Kaplan is in this too. Online is the future of this company. (And of the Wash Post). Their model is assisted self study online education. Attend a chat room with a mediocre teacher once a week. In 10-15 years that won’t be the model. It will be, you want to learn German? In 8th grade. You’ll go online and get one of the best teachers in the country, a dynamic teacher from Exeter. There will be thousands of courses.

Saad. Megastudy out of Korea, is a public company. They got the best Korean teachers, syndicated their content, delivered it oline, shared revenue with teachers. Hundreds of millions in EBITDA. They turned some teachers into millionaires. Gave them the Kobe Bryant audience you mentioned.

Jose. In 2000 there were 45,000 online German students in the country, now there are something like 2 million. If a parent wants the child to learn Chinese and the school doesn’t offer it, it won’t matter. Any course will be available. That movement will transform education in this country. Any elective.

[I just followed Knewton and Flat Work Knowledge on Twitter.]

Brian. Higher education in this country is very high-brow; they don’t like outsiders, particularly those seeking a profit, coming in to do things differently. There are 4,000 charter schools in the country. That is where you are finding openness to this kind of technology. We are the first charter school authorizer in the country–we hired the Boston Consulting Group. We built a technology infrastructure. We have 99 charter schools in the city. Hospitality high school. Residential school serving low income kids. Our infrastructure lets us compare schools so consumers can see what school would work best for them–plus mission specific criteria, so the hospitality high school gets measured on unique criteria as well. I’m surprised we were the first to build this kind of technology to assess outcomes.

Saad. Assessment is a good thing to look at. There used to be zero transparency in advertising. Feels like there should be a big opportunity to get transparency in student performance, across schools, etc. Are you seeing a lot of assessment technology?

Jeff. Yes, in higher ed, it’s a significant movement. To deliver assignments through a platform, and feed a professors gradebook, is a service the industry moving towards. It’s happening. Some great platforms out there. A big movement for all institutions, faculty and students.

Jose. You can’t built personalization without assessment, very granular, very discreet (self-contained), and no hiding results. I joked with my investors–if our adaptive learning platform works we’ll have data to show it. If it fails, we should go out of business. A typical Kaplan course will raise GMAT by 35 points. We have a 50 points guarantee. We give virtually no money back. We are measuring 100 points on average. We take text book content, like we took text prep. So the reporting shows how good the class was doing on each concept. The teacher might get an email showing that the students as a whole are struggling with certain concepts.

Brian. In the $4.5 billion that DOE is distributing to states in the race to the top, the state has to be able to assess a teacher in part based on their students’ achievement. The kind of technology Jose is talking about is essential in moving things along. Some states make it difficult to evaluate teachers. At the K-12 level there are infrastructure things that need to be addressed. School districts and states are going to have to change or get left behind. We have to realize, though, there is some resistance there.

Saad. What is the most helpful thing the government could do to help you be successful as you push boundaries of education technology?

Jeff. Eliminate tender? (laughed) If you take UMass online, a competitor to U of Phoenix, it has been successful. University of Illinois launched and failed. Why was UMass successful, but Illinois wasn’t? That’s a classic case study. There are incentives and infrastructure issues.

Jose. Govt should put more computers in schools. I never even thought about getting government money, so I raised venture capital. If nation’s best and brightest had been going into education and not finance during the last 10-15 years, we probably would have solved the problems already. There has to be incentive for top minds to go into this field.

Audience question: can a young person today apply themselves without a formal education and get the skills you need to succeed? (Like Bill Gates did?)

Brian. Most of the research is pretty clear that on average, the more education you have, the better off you will be in the marketplace. You cite Bill Gates as an example. You also have Michael Jordan and Tiger Woods–but you don’t necessarily want to use those examples and have kids think they can succeed without education, even though a few do.

Jeff. Big publishers are very scared of the electronic world. They will move very slow in terms of transparency. They want to control everything.

Jose. I talk to the big publishers all the time. Some are changing. Oxford (sic) is thinking of this.

Jeff. Five companies control 85% of the market.

Audience–I have no doubt adaptive learning will create better test scores, but what you learned at Harvard, you didn’t just learn from a professor or a textbook. You learned it from 80 other people in your core. How will that change by technology?

Jose. I believe schools in the future will have fewer teachers, 5,000 electives, but still a blended model. You’ll still have kids in schools, being socialized, learning from other kids. Lets say 5 years down the road we have OUP’s content. Maybe we’ll have 10 million kids that do geography that learned geography. The 10 million and 1th kid comes; our system will query, which kids previously had this problem, and also, what learning style did that kid have? We’ll find out what they did next, and which way they learned it. So then we can produce that same learning experience — anonymously — and use it to power the learn of one kid, on one night, on one concept.

Audience. I’m not questioning the value of the system. But the concept of a PhD is to have a thought that no one really had before. [She seemed to care more about the personal interaction of students than the panelists.]

Brian. We have a program that has 85% of their program online, but one day a week they come to brick & mortar. They can also engage in extra curricular activities.

Audience comment: I’m looking for people that can learn how to provide solutions in very complex situations. I find that very bright young people cannot communicate. They have a ton of information. But they can’t connect the knowledge to reality. The problem with the US educational system, you do not teach students how to learn. I see technology being helpful to create learning paths for individuals, and accomodate applying knowledge. I think you are missing providing them with process that can be tailored to individuals and groups.

Audience question. Every new technology comes with evangelists (I’m one) promising that it will change everything. Why now? Why is this different?

Brian. Now, because there has been a culture shift in education that is undeniable. There is a focus on outcomes. That is different. It began in the 1990s. We built on it since 2001. I’m talking K-12 here. It was led by policy makers, but the technology has enabled it. Since the 60s billions have been spend on education, but test scores are lower. It’s bi-partisan now. Some hold on to the status quo. Look at how teachers unions have responded to Pres. Obama’s plans to assess teachers–they whined at first but are coming around.

Saad. I’ll add that technology lets you go direct to the student. There is the class, where the channel is the school. But social networks and the web let you go directly to the student.

Jeff. I think it’s a great question. The textbook wasn’t supposed to exist in 2001 when I was in the industry in 1996. The difference, jumping on Saad’s point, but I think it’s going to be slow still, but the consumer is more powerful today than it was when I was at Prentice Hall, but it will be slower than we all think.

Hale Boggs, Partner, Manatt, Phelps & Philips, LLC

Dixon Doll, General Partner, DCM. Venture industry for 25 years. Menlo Park. Beijing. Tokyo. Focus on early stage technology and cleantech. I just served for a year as chairman of National Venture Capital Association here in DC.

Paul Thanos, director Financial Services at Department of Commerce. We focus on policy advocacy and analysis. Working with banks, insurance companies. We also do some work with VC and entrpreneurship.

Bob McCooey, SVP, Nasdaq. With IPO market the way it is now, I’m glad I have time. We are seeing a more robust market.

Jonathan. What is the most important thing the federal government can do right now?

Dixon. I’ll get to that, but before that, let me refer you to a 4-point plan that I’ve distributed. We are debasing the currency by 20% – 1.4 trillion – which is the worst since 1945. I’ve met the person in China in charge of investing all their surplus. If we don’t get our deficits under control, we could precipitate another crisis if China decides not to continue to invest in us.

US Venture Capital industry is the envy of the world. China is copying our model. We’ve created 12.1 million jobs. Growth rate of venture companies is 3x others. 92% of job creation happens after IPOs, which is why we need Bob (Nasdaq) and the other exchanges. 1 of 3 Americans have been impacted in quality of life from a life sciences company.

NCVA has a 4-pillar plan to restore liquidity in the US Venture Capital industry. 1. Taxation – R&D tax credits; keep capital gains where they are. If we aren’t capital friendly to entrepreneurs, they’ll go elsewhere. We’re in a global war for talent. 2. Regulation: I agreed with previous panelist that we need the government to stay out of the way. We hope venture capital can continue to be excluded from regulatory reform. We’d like government to streamline Sarbanes-Oxley. We’re not calling for the repeal of it, but it should be less expensive for companies to go public. I agreed with the gentleman from the White House who said the government should fund DARPA, NSF, etc. I got a 4-year scholarship to get my Ph.D. One reason we have fallen behind in math and science is that that government support has somewhat gone away.

Jonathan. What is the government doing to address the types of concerns we all have?

Paul. Unemployment of 9.8%. Biggest economic problem we are facing right now. VCs and entrepreneurs are important in creating jobs. Partly as a result of that, we are creating mechanisms to make it easier for VCs and entrepreneurs to give us policy input. What would make it easier for entrepreneurs? Creation of a innovation policy council recently. Commerce Dept has commercial officers in 100 countries. Part of their job is to help US companies go global, penetrate foreign markets, become more competitive. We have worked hard to make sure VC portfolio companies are aware of this service. We want the resources of the commerce department are leveraged in the best ways possible.

Jonathan. Hale, you are a private fund specialist. There are discussions on increasing regulatory burdens on all kinds of investment funds. Reporting requirements. Are these good proposals?

Hale. A lot of Californians here–not to watch the Redskins. So AlwaysOn put a conference on here. Some are here to get a piece of the federal money. That’s all to the good. The other reason we are here is the regulatory issues. Nothing comes without a price. We’ve mentioned Sarbanes-Oxley, which followed Enron and Worldcom, etc. The folks I work with, VCs, investment bankers, CEOs — they would say these rules have deterred good people from joining their firms, have not been helpful. If there is signifcant and onerous investment reporting, it could stifle the private equity folks from doing what they do. If VC firms with 10-15 employees have to hire a compliance officer, it’s hard to see how that kind of regulation would achieve what it is trying to achieve. The regulation of placement agents would be a regulatory overreaction. There have been some abuses with pay-to-play schemes that involve kickbacks. But what is being proposed is disallowing the use of placement agents–that’s a sledgehammer and not a scalple. Placement agents play a role. Smaller funds need these services to raise their money.

Bob. You can’t come here, listen to a bunch of panels, and go back to your lives and think things will happen with others. Whether you are in a VC fund or an entrepreneur, your voice has to be heard. Local representatives. SEC. Anyone crafting legislation. If they don’t hear from you, they’ll write it and pass it without enough input. And it won’t be affective. We have invited some CEOs of Nasdaq companies who came to meet with their representatives. We have people in Congress who voted for Sarbanes Oxley and still don’t know what it does.

Dixon. The people who draft the bills are well intentioned, but Sarbanes Oxley didn’t prevent the Madoff scam and other pyramid schemes. Small companies up to $75 million in revenue get an exemption. That’s ridiculous. It should be 10x higher than that. The amount of money you have to spend is amazing. IPOs went to zero — first time in 35 years. Five years ago my colleague asked Spitzer, “doesn’t it bother you that many Nasdaq companies have been orphaned” with the partition between bankers and analysts. He said, it was an unintended consequence and blew it off.

Bob. 600 of our Nasdaq companies had no research at all on them since the banking settlements — but we have teamed up with Morningstar and Nasdaq has paid for research to be done on all of them.

OpenTable and other tech companies are coming to market. In past 21 days, there have been 30 banker bake-offs for technology companies.

Dixon. I’m going to one tomorrow.

Bob. We see IPOs coming back; we have built out services for these companies. As you look at exchanges today, we have been successful because we provide investor relations, corporate governance and other services. There needs to be reform in the marketplace. Our customers have demanded more so we’ve been providing more to them.

Jonathan. This panel is not championing additional regulation. A lot of observers look at the mess we are in, and think it is the fault of lack of regulation. Is there any regulation that should be addressed?

Dixon. I don’t believe there is any from the standpoint of the venture industry. Back in 1978 I met the chairman of the venture association who cited a study that showed almost no IPOs. They came back and recommended the pension laws be modified. This was an example of how relaxing regulation played a positive role. This allowed them to invest in more risky, emerging growth companies. That basically turned the tide and got us out of the hole we were in back them. That led to a bubble that ended in 1983 when PCs and disk drive companies were hot. Led to more bubbles, and cycles. We don’t use leverage. If our entire industry went out of business, it would be a speck on the back of an elephant. We don’t take retail investors. So there is no need for protection for circumstances that don’t exist.

Bob. The problem right now is the philosophy is re-regulatory environment in Washington, where what we need is de-regulation.

Paul. We need an empowered systemic risk regulator. With AIG, it was insurance and financial services. It wasn’t clear who was regulating them. VCs are not a systemic risk problem.

Hale. Things that incentivize good behavior, co-investment funds for technologies that are deemed to be for the public good. That’s the kind of regulation that is meaningful. I have no problems with regulations or requirements attached to that kind of investment. But regulation for the sake of regulation — the idea of a systemic risk regulator may sound good, but how does it work?

Jonathan. The VC operating rules, which enabled US pension funds to start investing in venture capital, were truly a game changer. Those same pension funds and endowments, which have been the fixed funds behind VCs, are finding themselves unable to invest in these same funds, for various reasons. Some have too much in alternative asset classes, compared to their overall value, which is dropped. Is this a time when the government should take affirmative steps to re-energize the flow of capital in the venture industry? Should governments directly invest in VC funds?

Dixon. I don’t think so. I’d be shocked if institutions like Harvard and Stanford will make the same mistakes again. There should be some alternative liquidity. The history of involvement of government investment in venture capital was ugly. In China, all the municipalities wanted to pool their money and replicate the US venture model, but the managers there didn’t understand the model. Government makes a poor venture capitalist. But it can be a good support for VC if it understands its proper role.

Jonathan. Paul, we’ve all observed that regulation is being implemented by a vast patchwork of federal agencies. This creates a lot of cracks, into which some like financial industry, can fall. Should there be a single regulator?

Paul. It’s a good question and provocative. UK has a single regulator. FSA. There are many arguments that it operates more efficiently than our system. But you can also say they had similar problems to what we had here. The reality is that here in the US it is difficult or impossible to eliminate any of the regulators here. We are not going in that direction. We are going towards transparency, efficiency. It will play out over the next several months.

Dixon. The world is going global and talent is going where they have the best environment, tax treatment, etc.

During my life, many people thought that planning could create more wealth than freedom and free market. But over time it became clear by looking at all the data and all the comparisons, that central planning doesn’t work as well. Look at North Korea vs. South Korea at night. Half is lighted. Half is not.

Free markets still face challenges from interventions of all sorts, cronyism, corruption. We’ve always had some elements of this. In the past 13 months they’ve gotten pretty painful here. Bailouts, TARP, Health care takeover. Frenzy of special interest lobbying. Obama complained to George Stephanopolous on TV a couple weeks ago that some people think he’s taking over the whole economy. He’s not. Just health care, finance, education, automotive, etc, etc.

This what is Nobel prize winner Hayek called “the fatal conceit.” The idea that smart people can make better decisions than consumers in the market.

I don’t think Obama really wants to nationalize the means of production. He just wants to use government money and regulations to expand political control over the economy. The more this happens, the more lobbying will occur. It won’t surprise anyone that lobbying expenditures are rising. All of this investment in lobbying reflects what Willy Sutton said when asked why he robbed banks, “that’s where the money is.” Why do companies lobby Washington, “because that’s where the money is.”

Ralph Nader organization: “the amount spent on lobbying reflects how much the government intervenes in the economy.”

Hayek explained this in “The Road to Serfdom”:

As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing ….

If you want money flowing to the companies that have powerful lobbyists and good congresssmen, maybe this is a good idea, but we must realize that politicians rather than consumers will pick winners and losers.

The $700 billion TARP was mostly cooked up in secret, but no sooner was it out than lobbyists flooded the hill. By the time it passed it included provisions for Puerto Rico’s rum producers, makers of children’s wooden arrows, things in Nancy’s Pelosi’s district, all kinds of pork projects. Official story is always that every project that is funded goes through a federal procurement process, but that isn’t true.

The truth is that when you lay out a picnic, you get ants. And this is the biggest picnic ever laid out.

The Washington Post is doing a pretty good job of telling us what is happening. For example, at JP Morgan Chase [I missed what he said about them.] Citigroup’s general counsel is now working in DC, not in New York. Chairman of Blackrock used to talk to federal officials a couple times a month. Now he talks to them everday.

The problem is not just wasteful spenidng. It’s the intrustion of politics into business decisions. This is what has wrecked economies all over the world.

What do you get? The President firing the CEO of GM. Members of Congress pressuring GM to keep inefficient dealers open. Every CEO has a board, plus 536 bosses in Washington.

This creeping hand didn’t start in the past year. The biggest entrepreneurial success in the country may have been Microsoft. But in our modern politicized economy, some call it the parasite economy, no good deed goes unpunished for long. The government started launching investigations of monopoly, some competitors joined the attack. I don’t like how the govt lured Microsoft into this. Washington people started to threaten Microsoft that they had to play the Washington game. So in 1995 Microsoft hired a lobbying firm, hired a PR firm, got involved in trade associations. In 1998, Bill Gates wrote, “it’s been a year since I’ve been in DC. I think I’m going to making the trip a lot more.” I think that is a tragedy. Our most important asset is human talent. And now some portion of the brains at Microsoft is spent, not on pleasing consumers, but on getting on the right side of Washington.

Same story with Google. Again, some nerdy brililant engineers invented a product that revolutionized our lives. I can’t imagine doing research without Google. I couldn’t do my job with Google Desktop search. And some of us appreciate it. And others don’t like to see a company becoming indispensable. Google got the same kind of treatment Microsoft did. Now both companies have to compete in courts, halls of congress, halls of Federal Trade Commission and Justice Department.

Two hunters in the woods see a bear coming. One starts putting on tennis shoes. “You can’t outrun a bear.” “I don’t have to, I just have to outrun you.”

We are not yet at the level of Russia. “Because the government plays such an immense role in their economy litle can be done without bribing officials.”

I did wince when I saw that Mr. Gao (sic) from China said that the US doesn’t have a Chinese version of socialism, but “socialism with American characteristics.”

Sales of Atlas Shrugged and Road To Serfdom have been soaring.

Maybe mine is an anti-keynote addreess. I see titles here like “Tapping The Trillions”.  I wish the March of Entrepreneurs to Washington was to ask the Federal Government to stop doing all that they are doing.

There are “Political entrepreneurs” who make money by gaining influence in Washington. There are “Market entrepreneurs” who make money by selling products in the consumer marketplace.

Market entrepreneurs are the good guys. Too many people come to DC to become political enterprenreurs.

He said the term Laissez Faire originated in like 1680 in a conversation between Colbert (sic) and Ms. Lejandre (sic), the mercantilist minister asked how the French state could be of assistance to them. The entrepreneur basically said, “Leave us alone.” If government leaves entrepreneurs alone, they will raise the standard of living 8 times in the next century.

My keynote message is this: farm the great plains, not the capital. Network with computers, not politicians. Invent new ways for consumers, not to get influence in Washington.

Ask government to cut corporate tax rates, remove regulatory obstacles.

Ask them to stop centralizing everything.

Audience member asked a question about how to balance government involvement and the private sector. David said the government should do much less. He mentioned the entrepeneur who invented shipping containers. The containerization of shipping drops shipping costs by 97%. Government is going to do procurement, I think it should do a lot less regulation. We know about our unsustainable commitments to entitlements and deficits. Even if you are aware of this problem, it’s even harder to detect the cost of having the government involved in doing everything.

Another audience member asked a question about long term vs. short term. David answered by saying the investors generally take a longer term view than governments. Governments usually take at a short-term view–based on the next election. When the prescription drug benefit was passed, did Pres. Bush care about the fact that it would cost  a trillion in the next decade? No, he wanted to do something for the seniors before the next election. Capital markets are much better at long term investments.

When you get drunk, you will get a hangover. We have made a lot of bad decisions, there is no easy answer to solve this. Reducing corporate taxes will create more jobs. When you make it more difficult to fire workers, people become more reluctant to hire. Even if my plan were implemented today, unemployment would go to more than 10%, but I do believe it would come down more quickly after that.

Another audience member said she thought Google did a good job working with Washington on the spectrum auction. David said, I think Microsoft initially came to Washington for defensive reasons because they were being assaulted. But once they get here and hire a lobbyist, there is a danger of getting sucked in, when a lobbyist says, “if we can get this comma changed in the tax law, then that company will pay instead of you.” Maybe the answer is don’t make your lobbyist a senior vice president, make him a junior vice president.